NATIONAL CREDIT UNION ADMINISTRATION
WASHINGTON, D.C. 20456
LETTER TO CREDIT UNIONS

TO THE BOARD OF DIRECTORS OF THE FEDERALLY-INSURED CREDIT UNION ADDRESSED:

Congress has expressed a great deal of concern recently about the effect of drug trafficking on our society. As a result of that concern, Congress passed, and the President signed, the Anti-Drug Abuse Act of 1986. This law affects your recordkeeping and reporting obligations under the Bank Secrecy Act and the Department of Treasury's regulations.

As required by Congress, NCUA recently adopted a regulation requiring federally-insured credit unions to establish programs for compliance with the Bank Secrecy Act and Treasury's regulations. When I last wrote to you, I indicated NCUA would provide further guidance in this area. NCUA's guidelines are attached. The guidelines are in three parts. Part I is a checklist of the Treasury requirements and Part II is a more detailed explanation. Part III contains suggestions for establishing your compliance program.

While we have made every effort to keep the guidelines as concise as possible, the requirements of the law and Treasury's regulations are lengthy and complex. The guidelines do not impose new requirements, but rather are intended to help you comply with the law and regulations.

All financial institutions, including credit unions, are subject to recordkeeping and reporting requirements of the Bank Secrecy Act and the Treasury Department's regulations. Also, though outside the scope of these guidelines, some states have reporting requirements which may apply to your credit union. You should consult state regulators for information.

Two recent actions by Federal agencies are of importance to - federally-insured credit unions in meeting their responsibilities. First, Treasury has amended its regulations to make important changes in recordkeeping and reporting requirements. Second, as required by Congress, NCUA has issued a regulation requiring that federally-insured credit unions establish a program for compliance with the Act and Treasury regulations.

These guidelines are provided to assist you in complying with the requirements of the Treasury Department and NCUA regulations. NCUA's regulation (12 C.F.R. 5748.2) is found at page 748-1 of your Rules and Regulations booklet. For ease of reference, you may wish to keep a copy of these guidelines on file with the regulation.

This letter should be used only as a guide. Whenever any question exists with regard to the reportability of a transaction, reference should be made to the Treasury regulations and, if necessary, the matter should be discussed with the credit union’s legal counsel. Also, please feel free to contact your NCUA Regional Office if you have questions or need other assistance.

Chapter citations are to Treasury regulations found at 31 C.F.R. Part 103. Part 31 of the Code of Federal Regulations is available at many libraries or through the U.S. Government Printing Office, Washington, D.C. 20402. In the event you have difficulty obtaining a copy, contact your NCUA Regional office.

I. Important Definitions:

     (a) Currency - Coin and paper money of the U.S. or any other country. Currency includes U.S. silver certificates, U.S. notes, and Federal Reserve notes. 31 C.F.R. §103.11(d).

     (b) Monetary instruments - Currency, of the U.S. or any other country, securities or stock in bearer form or in any form where title passes on delivery, investment securities and all negotiable instruments; e.g., share drafts, personal and business checks, official bank checks, cashier's checks certified checks, third-party checks, promissory notes, travelers' checks, money orders and other similar instruments that are either in bearer form, endorsed without restriction, signed but with the payee's name omitted, or in any form where title passes upon delivery. 31 C.F.R. §103.11(j)

     (c) Transaction in currency - A transaction involving the physical transfer of currency, as defined in paragraph (a) above, from one person to another. A transaction which is a transfer of funds by means of bank check, bank draft, wire transfer, or other written order, and which does not include the physical transfer of currency is not a transaction in currency. 31 .F.R.§103.11(n).

     (d) Transaction account. A share draft account or any other account which permits withdrawals by negotiable instruments or telephone transfers for the purpose of making payments or transfers to others.

This section will summarize what records must be maintained under the Bank Secrecy rules. (Many of these records are maintained in the usual course of business.) These recordkeeping requirements are independent of and in addition to requirements to file reports for certain types of transactions, e.g., Form 4789- with Department of the Treasury for transactions in currency greater than $10,000. Additional records must be kept in connection with those reporting requirements. They will be discussed in connection with the specific reporting requirement.

II. Records To Be Maintained By Credit Unions [original, microfilm or other copy is acceptable]

All records discussed below must be retained by the credit union for a period of five years. All such records shall be filed or stored in such a way as to be accessible within a reasonable period of time. 31 C.F.R. §103.38 (d). It is not necessary to keep a separate system of records for each of these requirements so long as the information is accessible in the credit union’s existing record system.

This record shall contain:

(1) Name of borrower
(2) Address of borrower
(3) Amount of credit extended
(4) Nature or purpose of loan
(5) Date of loan

31 C.F.R. §103.33 (a)

(b) Requests to transfer funds outside the U.S. A record of any request made or instructions provide regarding a transfer of currency or other monetary instruments, checks, funds, investment securities, or credit greater than $10,000 to or from any person, account or place outside the United States. This is required whether or not a transfer occurs. If a transfer does not occur, a record must be maintained made before the transaction was canceled.

(c) Members’ taxpayer ID numbers. A record of the taxpayer identification number of any member opening a share or share draft account or purchasing or redeeming a share certificate. In cases of joint accounts, information on a person with a financial interest must be maintained. (If the person is a nonresident alien, record the passport number or a description of some other government document used to verify identity.) This information must be recorded within 30 days of the date the transaction occurs. 31 C.F.R, 103.34(a)(1)(2). In the event a credit union is unable to secure the information, it must maintain a list containing the names, addresses, and account numbers of those members for whom it has been unable to secure the information. 31 C. F. R. §103. 34 (a) (1) .

(d) Exceptions. Taxpayer identification numbers required in paragraph (c) above need not be secured for accounts or transactions with the following:

(1) agencies and instrumentalities of Federal, state, local, or foreign governments;

(2) judges, public officials, or clerks of courts of record as custodians of funds in controversy or under the control of the court;

(3) certain aliens as specified in 31 C.F.R. §103.34 (a) (3) (iii-vi);

(4) certain tax exempt organizations and units of tax-exempt organizations. See 31 C.F.R. §103.34(a)(3)(vii);

(5) a person under 18 years of age with respect to an account opened as a part of a school thrift savings program, provided the annual dividend is less than $10; and,

(6) a person opening a Christmas club, vacation club, and similar installment savings programs, provided the annual dividend is less than $10.

(e) Signature authority. A record of each grant of signature authority over each share or share draft account. 31 C.F.R. S103. 34 (b) (1).

(f) Individual account ledgers. A record of each statement, ledger card or other entry on each share account, showing each transaction with respect to that account. 31 C.F.R.§ 103.34 (b) (2).

(g) Share drafts or money orders. A record of each share draft or money order drawn on the credit union or issued and payable by it, except those for $100 or less. 31 C.F.R.§103.34 (b) (3).

(h) Exceptions. A record need not be kept of those share drafts or money orders, regardless of amount, drawn on accounts which can be expected to have drawn on them an average of at least 100 share drafts per month over the calendar year or at least 100 share drafts each time such drafts, (ii) payroll share drafts, (iii) employee benefit share drafts, (iv) insurance claim share drafts, (v) medical benefit share drafts, (vi) share drafts drawn on government agency accounts, (vii) share drafts drawn by brokers or dealers in securities, (viii) share drafts drawn on fiduciary accounts, (ix) share drafts drawn on other financial institutions, or (x) pension or annuity share drafts. 31 C.F.R. §103.34 (b) (3).

(i) Debits in excess of $100. A record of each item in excess of $100 (other than credit union charges or periodic charges made pursuant to agreement with the member), comprising a debit to a member's share or share draft account, and not specifically exempted, under subparagraph (h) above. 31 C.F.R. §103.34(b)(4).

(j) Transfers outside the U.S. A record of each item or remittance, including share drafts, other drafts, transfers of credit, funds, currency, other monetary instruments or investment securities of more than $10,000 remitted or transferred to a person, account, or place outside the United States. 31 C.F.R. §103.34 (b) (5), (6) .

(k) Share drafts issued or payable by foreign banks. A record of each share draft or other draft in an amount in excess of $10,000 drawn on or issued by a foreign bank which the credit union has paid or presented to a non-bank drawee for payment. 31 C.F.R. §103.34(b)(7).

(l) Receipts from outside the U.S. A record of each item, including checks, drafts or transfers of credit, of more than $10,000 received directly, (not through a domestic financial institution) by letter, cable, or any other means, from a bank, broker or dealer in foreign exchange outside the United States. 31 C.F.R. 9103.34(b)(8).

(m) Receipts from outside the U.S. A record of each receipt of currency, other monetary instruments, investment securities or checks, and each transfer of funds or credit, of more than $10,000 received on any one occasion directly (not through a domestic financial institution) from a bank, broker or dealer in foreign exchange outside the United States. 31 C.F.R. §103.34(b)(9).

(n) Share Draft Accounts. Maintain records prepared or received by a credit union in the ordinary course of business, which would be needed to reconstruct a share draft account and to trace a share draft in excess of $100 deposited in such account through its domestic processing system or to supply a description of a deposited share draft in excess of $100. This paragraph shall be applicable only with respect to share draft accounts.

(o) Share certificates. A record of the name, address, and taxpayer identification number of the purchaser of each share certificate as well as a description of the certificate, a notation of the method of payment, and the date of the transaction. 31 C.F.R. §5103.34(b)(11).

(p) Payment of share certificates. A record of the name, address and taxpayer identification number, if available, of any person presenting a share certificate for payment, as well as a description of the instrument and the date of the transaction. 31 C.F.R. §103.34(b)(12).

(q) Records of deposits. Each deposit slip or credit ticket reflecting a transaction in excess of $100 or the equivalent record for direct deposit or other wire transfer deposit transactions. The slip or ticket shall record the amount of any currency involved. 31 C.F.R. §103.34(b)(13).

III. Transactions in Currency over $10,000. Report each deposit, withdrawal, or exchange of currency by or through their institution that involves a transaction in currency greater than $10,000. 31 C.F.R. S103.22(a)(1)

(a) The Form to be used is IRS Form #4789, Currency Transaction Report. A copy is attached.

(b) The report must be filed by the credit union within 15 days following the day on which the transaction occurred. 31 C.F.R. §103.26(a)(1).

(c) It must be filed with the Commissioner of the IRS. 31 C.F.R. §103.26 (a) (4) .

(d) A copy must be retained by the credit union for 5 years. 31 C.F.R. §103.26(a) (3).

(e) Multiple currency transactions must be treated as a single transaction if the credit union, through a director, official or employee, has knowledge that they are by or on behalf of any person and result in cash in or cash out totaling more than $10,000 during any one business day. 31 C.F.R. §103.22(a)(1). Thus, multiple transactions will have to be reported if they exceed $10,000 in one day and the credit union has knowledge that they are by or on behalf of one person.

(f) Reports of transactions in currency in excess of $10,000 are not required if between the credit union, Federal Reserve Banks, or other domestic banks or credit unions. 31 C.F.R.§ 103.22(b)(1).

IV. Exemptions from Reporting Requirements - 31 C.F.R. §103.22(b)

(a) A credit union may exempt from reporting requirements deposits/withdrawals of currency if from:

Existing accounts and by an established depositor who is a U.S. resident operating a retail business in the United States.

(1) Retail Business is one engaged primarily in providing goods to ultimate customers, (e.g., food store, gas station). Dealerships which buy or sell motor vehicles, vessels and aircraft are not included and may not be exempted. 31 C.F.R.§103.22(b)(2)(i).

(b) Other Exemptions. Deposits/withdrawals from existing account by an established depositor and U.S. resident. who is operating:

V. Transfers Into or Out Of the U.S. In certain limited circumstances a credit union must report transactions where it is involved in the transportation, mailing or shipping of currency or monetary instruments, which in the aggregate exceed $10,000, into or out of the United States. (Examples of such a transaction would include situations where the credit union itself physically transfers the currency or monetary instruments or where it does so by private messenger service.) 31 C.F.R. §103.23(a).